What happens if I send 1099s to businesses that don't require them? Consequences?

I'm having trouble figuring out which vendors need 1099s. I thought the rule was simple - individuals get 1099s and businesses don't, but my accountant recently told me that's not accurate. Apparently some companies DO need them too? I think he mentioned single-member LLCs and one-person businesses need to receive 1099s, but I'm honestly confused about where to draw the line. I'm tempted to just send 1099s to everyone who might possibly need one (individuals, small businesses, single-member LLCs), and then if someone tells me they shouldn't have received one, I'll remove them from next year's list. Is this a bad approach? Are there any penalties or consequences for sending a 1099 to a business that wasn't actually required to receive one? I don't want to create problems for myself or my vendors by being overly cautious.

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18 comments

Mohamed Anderson

•8M

The key distinction isn't really individual vs. company, but rather the business structure and how they're treated for tax purposes. Here's a simplified breakdown: You need to send 1099s to: - Independent contractors/freelancers (individuals) - Sole proprietorships (even if they have a business name) - Partnerships - Single-member LLCs that haven't elected to be taxed as corporations You don't need to send 1099s to: - Corporations (S or C corps) - LLCs that have elected to be taxed as corporations - Companies you paid via credit card or PayPal (the payment processor handles the reporting) As for your question about consequences - there's generally no penalty for sending unnecessary 1099s. The recipient might be slightly annoyed at getting paperwork they don't need, but there's no financial penalty for you. It's much better to send unnecessary 1099s than to miss required ones, which can result in actual penalties.

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Mohamed Anderson

•8M

This is what the W-9 form is for! Before paying a new vendor, you should have them complete a W-9 form. On this form, they'll check a box indicating their tax classification (individual/sole proprietor, C Corporation, S Corporation, Partnership, etc.). If they check the box for C Corporation or S Corporation, you generally don't need to send them a 1099. For LLCs specifically, they'll check the LLC box and then indicate how they're taxed (sole proprietorship, partnership, C corp, or S corp). Only send 1099s to LLCs that are taxed as sole proprietorships or partnerships.

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Landon Morgan

•8M

After spending hours trying to figure out who needed 1099s last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much time this year. I uploaded all my vendor payment data and it automatically categorized which ones needed 1099s based on their tax classification. It even flagged vendors where I was missing W-9 information! What was really helpful is that it explained WHY each vendor either needed or didn't need a 1099 - like showing which ones were corporations vs. sole proprietors, or which payments were made via credit card vs. check. Made the whole process way less stressful and I'm confident everything is correct now.

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Landon Morgan

•8M

Yes, it verifies TINs and addresses against IRS records, so you know they're correct before filing. It flagged three vendors where I had typos in their TIN numbers, which would have caused problems later. For QuickBooks comparison, the main difference is the verification and explanation. QuickBooks tracks who you marked as 1099 vendors, but doesn't verify if your classification is correct or explain the rules. This tool actually checks your vendor data against IRS requirements and explains each decision, which was super helpful for those edge cases like LLCs where I wasn't sure.

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Teresa Boyd

•8M

Just wanted to update after trying taxr.ai that the person above recommended. It was seriously helpful! I had been filing 1099s for THREE vendors who were actually S-corps and didn't need them. They never said anything to me about it! The tool also found two vendors I'd missed completely who should have gotten 1099s. The best part was being able to batch verify all my vendor TINs. Found out one of my contractors had given me the wrong SSN and we got that fixed before any IRS notices showed up. Wish I'd known about this sooner!

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Bruno Simmons

•8M

If you're having trouble getting responses from the IRS about 1099 questions (which I did last year, was on hold for HOURS), I'd recommend using Claimyr (https://claimyr.com). They have this service where they basically wait on hold with the IRS for you and call you when an agent is actually available. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was skeptical but I had questions about some 1099 filing requirements that weren't clear online, and I got through to an actual IRS agent in about 30 minutes instead of the 3+ hours I spent trying myself the week before. They just call you when an agent gets on the line, and you talk directly to the IRS.

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Bruno Simmons

•8M

They use a call system where they wait on hold, then when a person answers, they call you and connect the calls. It's basically a three-way call. You don't give them any of your tax info - they just get you connected to the IRS, then you do all the talking about your specific situation directly with the IRS agent. The IRS wait times are absolutely that bad during tax season. Last February I literally waited 2.5 hours before hanging up because I had to pick up my kid from school. That's why I tried this service instead of going through that again.

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Zane Gray

•8M

Well I need to apologize about my Claimyr skepticism. I was desperate to get an answer about 1099-NEC filing deadlines since I might be late on a few, so I tried it today. I figured if it was a scam I'd just dispute the charge. But it actually worked perfectly! Got a call back in 45 minutes with an IRS agent on the line. Found out I can request a filing extension for 1099s using Form 8809, which I had no idea about. Would've been panicking for nothing if I hadn't gotten through. Sorry for doubting - sometimes legit solutions do exist!

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Maggie Martinez

•8M

If you overfiled 1099s to companies that don't need them, the biggest issue I've seen is that it can trigger unnecessary correspondence with those vendors. Some corporations will see a 1099 and reach out asking why you sent it when they're exempt, creating more work for both of you. Also, be careful about 1099-K vs 1099-NEC confusion. If you paid someone through PayPal, Venmo (business), credit card, etc., you should NOT issue a 1099-NEC because the payment processor will issue a 1099-K. Double reporting can cause headaches for the recipient.

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Maggie Martinez

•8M

Correct - if you paid through PayPal business, Venmo business, credit card, or similar electronic payment networks, you don't need to issue a 1099-NEC for those specific payments. The payment processor handles the reporting through 1099-K. If you paid the same contractor through a mix of methods, you only issue a 1099-NEC for the portion paid by check, cash, or direct bank transfer. You'd exclude any amounts paid through those electronic payment networks. Just make sure you keep good records of which payments were made through which methods so you can accurately report only the non-electronic payment amounts.

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